The Analyst

The Thesis

Shares of Lowe's are well-positioned to outperform in 2018 for three reasons, Feldman said in the upgrade note:

The do-it-yourself home improvement retailer could benefit from the ongoing strength in the housing market, which will remain strong for at least the "next several years." Feldman attributes the housing market's ongoing strength to home price appreciation that's still below the prior peak in many large markets; new household purchases from millennials; and the fact that 65 percent of all U.S. homes are over 30 years old and require some form of improvement.

It is no secret that Lowe's has some "structural disadvantages" compared to its much larger rival Home Depot Inc (NYSE: HD), including less exposure to larger metro markets and within the pro customer segment, the analyst said. But Lowe's has multiple company-specific initiatives ahead to reduce costs, including creating efficiencies in the labor and supply chain, reducing indirect spend and boosting the profitability of its Canada-based RONA chain, Feldman said.

Finally, the involvement of activist investor D.E. Shaw resulted in the addition of new directors to the company's board, including David Batchelder, who sat on Home Depot's board from 2007 through 2011. During that time period, Batchelder helped oversee Home Depot's transformation into the giant it is today, Feldman said.

Price Action

Shares of Lowe's were trading higher by 0.13 percent at the time of publication.